As I mentioned in my last blog, a disadvantage of being a C-Corp is significant recordkeeping requirements. Here I want to go through the minimum of what you need to set up, and link to some sample documents that you could adapt. As always, consult YOUR attorneys before assuming these are appropriate for your company! These requirements are for a Delaware C-Corp.
It may seem ridiculous to go through these requirements when there are only a couple of you starting up, but it will create structures that allow your company to grow. Getting it right from the beginning is REALLY helpful as you try to bring on new investors or employees.
First, here is a detailed list of all the requirements to become a Delaware C-Corp. You will need:
Articles of Incorporation
Articles of incorporation are the foundational document for C-corporations and S-corporations. You have to file these documents with the state for your corporation to exist. The information that goes into the articles of incorporation will vary based on what state you’re in, but it typically includes the following:
Business’s name, address, and principal place of business
Purpose of the corporation
Number and type of shares (if the corp is issuing stock)
Names and addresses of the initial board of directors
Registered agent for the corporation (person or company who will accept official mail and legal papers on the company’s behalf)
Name, address, and signature of the incorporator who is submitting the form (usually you, your attorney, or an incorporation service if you’re using one)
All states charge a fee (ranging from approximately $100 to $500) to process the articles of incorporation. Once the state processes it, they will send you a certified copy of the articles which confirms that they’ve approved your corporation to do business in the state.
2. Bylaws
Corporate bylaws lay out how the shareholders, officers, and directors will split control within the organization and manage it on a day to day basis. Along with the articles of incorporation, corporate bylaws are the main organizational document for a corporation.
Corporate bylaws usually contain the following info:
Basic business information, like name, address, and principal place of business
Frequency and procedures for shareholder meetings, board meetings, and annual meetings
How directors and officers will be elected and replaced when there are vacancies
Types of officers (e.g. CEO, CFO, CMO, etc.) and their responsibilities.
Procedure for the board of directors to adopt resolutions
Procedure for corporate record keeping, including frequency of audits
Procedure for amending the articles of incorporation and bylaws
Number, type, and authority to issue shares of stock
Dissolution process
Although many people confuse the articles of incorporation and bylaws, they serve different purposes. The first just sets up a skeletal outline for the corporation, while the latter includes all the details for managing and running the corporation on a daily basis.
3. Shareholder Agreement
Shareholder Agreements touch on shareholder rights and responsibilities that aren’t mentioned in the corporate bylaws.
The shareholder agreement will typically specify a number of things:
How owners can sell their shares should they choose to exit the corporation
What happens to an owner’s shares when they pass away or if they become disabled
How and when the corporation will issue dividends
The number, type, and value of shares
Which board measures require shareholder approval and what percentage of shareholders need to approve.
Not every small business will need a shareholder agreement, and no states require a business to have one. However, if your corporation has multiple owners, it’s a good idea to have a written shareholder agreement.
4. Ongoing Recordkeeping (Board Meeting Minutes, Annual Reports, Tax Filings, etc.)
All states requires corporations to maintain and safely store corporate records, so there’s a paper trail for government audits and other legal purposes. Meeting minutes are one of the most important corporate records because they document important company decisions. You should keep minutes during all formal meetings—shareholder, board, and annual meetings.
These are some things you should memorialize in meeting minutes:
Date, name of everyone present, and if there’s a sufficient quorum to make binding decisions on behalf of the corporation
Election of a new director or appointment of a new officer
Resignation of a director or officer
Corporation takes out a business loan
Corporation enters into an important contract
Corporation purchases insurance
Stock transactions and Options Pool replenishments
Under state laws, corporations are generally required to keep meeting minutes. It’s not pleasant to think about, but they will come in handy if the government audits your business or someone sues your business.
5. Board Resolutions
Board resolutions document and formalize board decisions and show how directors voted on different matters affecting the company. These records are important for compliance reasons if a board’s decision is, for example, ever called into question in a lawsuit or during an audit.
It’s a good idea to have a board resolution for each of the following types of business decisions:
Hiring new officers
Selling shares in the corporation
Acquiring another company or a part of it
Channeling corporate funds to an important project
Approving a business loan
Approving a contract
You should store resolutions along with other important corporate records, such as your articles of incorporation and meeting minutes. Board resolutions usually follow a specific format, with the date, number, and title of the resolution followed by a description of what exactly the board decided. Follow this description with a listing of all directors present, who voted yes and no, and their signatures.
6. Stock Certificates
A stock certificate is a piece of paper which records the sale and purchase of shares in the corporation. Stock certificates were traditionally physical pieces of paper, but most companies now back them up with digital versions. The certificate will specify the business’s name, the shareholder’s name, the date of the sale, the signature of the board member who authorized the sale of stock, and the company’s seal.